Rains, incomes & food: Good monsoon this year is bad news for India

The monsoon made a dream start this year. Bountiful rainfall in June has prepared the ground for bumper harvest and lower food inflation. But don't celebrate. Look beyond the immediate future and good monsoon this year may not really be good news. It has merely delayed an agricultural crisis, which our complacent policymakers perhaps need to jolt them into action.

With food demand rising in step with the growing population and incomes, India increasingly needs near-perfect monsoons to feed its people. With the food security Ordinance staring, perhaps glaring, at India's agricultural economics, the risks are even higher. The impending crisis has been brewing for a few years. Consider how food prices reacted to aberrations in rainfall in recent years.

A decade ago, India's demand-supply situation could easily withstand a drought. In 2002, when the monsoon was 19% in deficit, inflation remained at a manageable single-digit level and quickly returned to normal. It was quite a different story in 2009, when the monsoon was a comparable 22% below normal. This time, the deficit ignited food prices, which rose 20% by December, and remained stubbornly high for a long time. Studies have shown that the global commodities boom and India's fiscal indiscipline contributed to high food prices, but the sluggishness in agricultural productivity and the slow growth in output certainly magnified the mess.

The trend was no less disturbing last year, when the monsoon was statistically normal, although unevenly spread. This hit food output, hoisted food prices and shattered hopes of an early easing of the tight monetary policy. The risks are, therefore, much higher if the monsoon fails in future. But policymakers are displaying no sense of urgency to tackle the situation. The next drought is not far away. Government data shows that rainfall is erratic in four out of every 10 years and, every year, 50 million people are exposed to drought as 16% of the country is drought-prone. Further, the rainfall pattern in recent years is disturbing. Monsoons have regularly delivered heavy showers in September, which historically has moderate rainfall. Arid areas in Rajasthan have often been drenched by torrential rain, while the usually wet and flooded northeastern region has been relatively drier. With shifting rainfall patterns, India's food vulnerability is rising. The only instrument in government's control is measures to boost productivity. India's farm productivity is abysmally low. Yields of Indian paddy are half of the level in China, and about one-third the level in Egypt. Similarly, wheat output is dramatically lower than European countries and much lower than China. In maize, it is among the lowest in the world and almost half the level of Pakistan.

It is not that the government has done nothing about it. Production has increased in recent years but the gains have been wiped out by population growth and higher demand as rural wages and overall standards of living improved. This is evident from data on per-capita net availability of grain per day, which is the total production minus wastage, seed, feed and exports and adjustment for changes in stock or imports.

During the Green Revolution, the per-capita daily availability increased. In the case of rice, it rose from 159 g per day in 1951 to 193 g in 1971, but was only 189 g in 2011. In the same period, total food grain availability first rose from 395 g to 408 g in 20 years, and expanded to 463 g in the next 40 years, or an annual rise of 1.35 g per day. In case of pulses, an important source of protein for Indians, it has dropped from 60.7 g in 1951 to 39.4 g in 2011.

In the last few years, government's focus on welfare schemes has helped rural wages rise sharply. This increases costs, therefore prices, of farm products and also translates to higher food demand in a country where 18% of the population is undernourished. This is a recipe for more stubborn food inflation, which is bad news for industry, as it would adversely hit monetary policy and interest rates. For rural people, it is even worse because the share of food in consumer expenditure is about 54% against 41% in cities.

And the next bad monsoon can throw everything out of kilter. We have been warned.